Cost increases to challenge global beef demand according to Rabobank

Angus Gidley-Baird, Senior Animal Protein Analyst at Rabobank

Global beef markets remain tight on strong ongoing consumer demand and constrained supply, however headwinds are building, Rabobank says in a newly-released report.

In its Q1 Global Beef Quarterly, the specialist agribusiness bank says while global beef prices remain high – with cattle prices across most key beef-producing regions at their highest levels in five years – cost pressures are building in the supply chain.

And this will test the willingness of consumers to continue to pay ‘top dollar’ for beef.

“Over the past two years, retail beef prices have been phenomenal,” the Rabobank survey report says, largely driven by strong consumer demand and some supply shocks.

The report also highlights that in Q4 2021, beef retail prices in the US were 23% higher than the five-year average and in China, they were 24% above the five-year average.

Consumer ‘demand pull’

Much of this increase in prices has been caused by “demand pull”, according to Rabobank’s senior animal protein analyst Angus Gidley-Baird.

The price increase is driven by increased consumer appetite for beef due to factors including restrictions, disposable incomes from stimulus packages and (in the case of China and African swine fever in pork) limitations on the availability of alternative proteins.

“With beef supply unable to keep up, the increase in demand has created an imbalance in the market and, as a result, beef prices have lifted,” he said.

In many cases, the increases in retail beef prices have been among the largest in history.

As beef prices increased in 2021, prices for other proteins remained stable or contracted.

“While price rises in beef have been dramatic, the fact they have been largely caused by consumer demand has meant they have been accommodated.”

“That is, consumers have been willing to pay higher prices to continue consuming beef.”

Inflationary pressures

“Inflationary pressures are building in the beef supply chain, with labour, freight and energy costs among the largest to see increases, along with feed. Some of the cost increases will be permanent and need to be “fitted” and passed on into retail pricing,” Mr Gidley-Baird said.

“Cost pressures like freight, energy and feed, are cyclical and are expected to decline.”

“However, some of cost increases, those associated with labour and sustainability for example, will be permanent and will need to be fitted in the supply chain.”

“Further increases in beef prices run the risk of consumers substituting other proteins or reducing their consumption. We are starting to see signs they might be reaching their limit.”

Russia-Ukraine Conflict

The Q1 report says the Russia-Ukraine conflict is not expected to have a major impact on global beef markets, given Russia is less prominent in markets compared to five years ago.

Russia only accounts for approximately five per cent of global beef imports with its major suppliers being Paraguay, Brazil and Argentina. However, indirect impacts are possible.

“Increased energy, fertiliser and feed costs as a result of the conflict could all impact the beef supply chain and, with Russia and Ukraine accounting for 29% of global wheat exports, any trade embargoes could pressure feed prices,” Mr Gidley-Baird said.

“The general uncertainty, along with slower global growth and inflation, could also see an erosion of consumer confidence which may result in an easing of demand for beef.”

Australia

The report found “encouraging rains” across central, northern and eastern Australia in the first two months of 2022 will support cattle production in the big producing states.

“After a number of dry years in the north, we expect rains to stimulate restocking and herd rebuilding, adding further producer demand to an already strong cattle market,” he said.

“Such restocking will also support increased production in the years to come.”

Australian cattle prices remain strong, supported by ongoing producer demand for restocking, coupled with the limited availability of cattle, the report says. Cattle processing has had a slow start for the year, with Omicron cases in the community impacting the labour force.

“For the first five weeks of 2022, east coast weekly cattle slaughter in Australia was 9% below the same period last year and forty per cent below the five-year average.”

Australian beef exports ended 2021 down 15% on 2020 volumes, the report said.  The largest declines were to the US (down 31%), China (down 25%) and Japan (down 13%).

Volumes lifted however to South Korea (up 3%). Live exports followed a similar trend – down 27% overall, with volumes to Indonesia down 13% and to Vietnam down 44%.